National Grid UK Distribution Update Gas Customer Forum 29 th January 2007 Kerri Matthews

Content  Transportation Charging  Changes to DN Transportation Charges  October 2007 Price Changes  General Updates  Changes to Siteworks Terms & Conditions  Developing Competition in Connections Services  National Grid Code of Practice  I&C Round Table

Transportation Charging

DN Transportation Charges  Changes following Ofgem’s review of DN Charges  Rebalancing of Capacity / Commodity split  Change to the Domestic Customer Charge  Updating of the Economic Test  Update of data used to determine structure of Charges  DN Interruption Reform  Removal of Interruptible status  Tender process for DN interruption

Rebalancing of Capacity / Commodity split Forthcoming Pricing Consultation  Move to new capacity / commodity system charge split and adjustment to interruptible discount from April 2008  Move to high capacity element  Better reflects costs  Bring charging structure more into line with expected Price Control structure, to give better price stability  Adjust interruptible discounts to keep them at the same level as at present  May allow move to April rather than October price changes  Initial Discussion Paper expected February

Change to the Domestic Customer Charge  Move from commodity to capacity charging basis  Better reflects costs which don’t vary with throughput:  Service pipe costs  Emergency service costs  Reduces sensitivity of collected income to throughput from 63% to 35%  Helps provide price stability  But Price Control income fixed for 2007/8  April 2007 implementation  Allows capacity charge to be set at annual level  Change is revenue neutral for DNs  Billed by adjusting LDZ System Capacity Charge rate in short-term  New rates will be published by 1 February 2007

Updating of the Economic Test  New DN-specific Economic Test for new connections to be introduced shortly  Test is used to meet Gas Act obligation to connect loads where it is economic to do so  Operates in same manner as existing test  Excludes NTS costs and income  Reflects DN-specific costs and transportation income  Explanatory note issued on application of Economic Test if Interruption Reform goes ahead

Data used to determine Charging Structure Forthcoming Pricing Consultation  The data and calculations to determine current charging structure is on a national basis for all DNs  Ofgem have requested DNs to update this analysis to reflect the individual nature of each DN  Changes to be implemented in October 2008

DN Interruption Reform Forthcoming Pricing Consultation  End of Interruptible Discounts from 2010  subject to Mod 90  How costs of purchasing NTS offtake capacity will be reflected in Distribution Charges from 2010  subject to Exit Reform  Both expected in next month or two  Note that Pension Cost payments to NTS will be reflected through existing DN charging structure

October 2007 Price Changes  Several factors driving price changes  Increased allowed revenue (11%) to cover increased costs  Material under-recovery in 2006/7 (weather effect)  Reductions in SOQ’s in October 2006  October price effect (1.5 x)  Impact of previous price changes  Allowed revenue for 2007 still uncertain:  DNMRA still being determined  Under recovery from 2006/7  Indicatives to be provided asap, updated on ongoing basis

General Updates

Changes to Siteworks Terms & Conditions Background  Changes are necessary to ensure recovery of connections costs from customers and alignment with the Ofgem’s views that DNs should take “…additional steps to manage under-recoveries in connection costs from customers due to time lags and conservative charging…”  In providing fixed quotations for connections, National Grid Gas is exposed to any changes to its cost base between issuing the quotation and final completion  This period is currently 1 calendar year - the combined effect of the changes reduce this risk period down to 6 months  Following the changes to charging methodology in July 2006, where charges now reflect the costs we reasonably expect to incur, we believe that 6 months is a reasonable and manageable time frame on which to base our quotations  Section G7.2.4 of the Uniform Network Code requires National Grid to give Users 3 months notice of any change to contract terms  Formal notice was issued 29 th December 2006.

Changes to Siteworks Terms & Conditions Changes effective from 1 April 07  Changes will be effective for all new requests received on or after 1 April key changes are detailed below:  Quotation validity period  Reduced from 90 to 45 days, and  Termination  Quotation to substantial completion (gas on) - reduced from 270 days to 120 days and Quotation to final completion - reduced from 1 calendar year to 6 months  Customers will be able to extend works beyond these timescales on payment of a variation to cover any increases in costs where they arise  Stage Works Notice Period  An alignment of the notice period (from the customer) for non main laying works with the notice period for main laying works – customer to notification increase from 15 to at least 30 working days  Guidance Notes  Currently significant duplication between the Guidance Notes (introduced in 2004) and Siteworks Terms – guidance notes therefore to be withdrawn

Changes to Siteworks Terms & Conditions Changes effective from 1 April 08  National Grid also intends to carry out a complete review of the Siteworks Terms during this will involve:  Bringing the terms into line with the Engineering and Construction Short Contract  Moving all customers onto pre-payment terms  National Grid will provide detail of these changes once proposals have been developed further

Developing Competition in Connections Services Background  National Grid is committed to the ongoing support for a competitive connections market

Developing Competition in Connections Services National Grid Consultation  Consultation launched proposing specific changes to improve and simplify business processes  Published 12 th January 2007  Closing Date 1 st March 2007  Initiatives remain consistent with established National Grid principles, namely  Every Customer should have a choice of Connection Service Provider  There must be equality of treatment between Connections Service Providers  Customers should pay market price for connection services received* * except where a gas transporter has a legal or licence obligation to fund part of the cost (which may be recovered from transportation customers)

National Grid Code of Practice for Gas Customers  National Grid has a Licence obligation to make available to the general public its Code of Practice  The Code informs customers:  When and how we might contact them  How they can get in touch with us to enquire or complain about any service we provide  The steps we take to ensure that only properly trained staff or contractors make visits to their home  The special services available to those customers who are blind, partially sighted, deaf or hearing impaired

National Grid Code of Practice Raising Awareness  Availability from February:  Hard Copies: 9 language versions, Braille, Audio, Large Print  Website: as above and an easy to read version  External Organisations to be contacted  Shippers/suppliers  Care agencies  Libraries  All employees and contractors in the UK gas business will be briefed from February

National Grid I&C Round Table  Next “I&C Round Table” date confirmed!  Date: Tuesday 20 th March  Time: 11.00am – 1.00pm  Venue: National Grid House, Gallows Hill, Warwick, CV34 6DA  Agenda items would be welcomed as early as possible to assist in collating information and arranging speakers